Solana: Don't Judge The Book By Its Cover

2022-03-10 | Selina Mathew

Solana: Don't Judge The Book By Its Cover

Synopsis of the Thesis

Solana (SOL-USD) is a rapidly expanding layer 1 blockchain that has the potential to dethrone Ethereum (ETH-USD). In a recent essay, I contrasted Solana to Ethereum, pointing out that Solana had significant benefits above Ethereum. Nevertheless, there are a couple of significant downsides to Solana, one of which I find particularly troubling.

Decentralization is a fundamental cryptocurrency selling feature, however, Solana does not provide it. That being said. Is it good enough to justify compromising decentralization to obtain more effectiveness? Will consumers feel at ease building on a centralized network?

I have Solana in my wallet, however, I am concerned regarding its prospective prospects as well as having more capital committed in cryptocurrencies with longer-term potential.

It's too much of a serendipity

Anatoly Yakovenko established Solana, which was formally presented in 2020. Ever since it has grown at a breakneck pace:

Solana was launched at roughly $1 and peaked over $250 at its zenith before falling to around $90 when the wider cryptocurrency market corrected. Solana's rise corresponded with a general bull trend in cryptocurrency, but it was one among the top performers, which is predictable given its technical specifications.

Solana employs Proof-of-History, allowing validators to calculate the flow of time. In reality, this implies that validators do not want to complete for blocks to be completed in order to validate new transactions. They have the ability to verify transactions as they go in. Solana additionally employs the Turbine protocol, which, similarly sharding, divides large blocks of data into smaller, relatively digestible chunks.

All of the technology enables Solana to process up to 50,000 transactions per second, with transaction costs averaging under $0.00025, as per its website.

Solana has a thriving development ecosystem, as well as its native wallet, Phantom, is valued at $1.2 billion. Solanart, a vibrant NFT marketplace on the Solana blockchain, is also available.

On-chain analytics may also be used to track the rise of Solana's prominence:

Programmers like Solana for understandable grounds, and this cryptocurrency has a lot of backing. However, does that imply you should purchase it?

Solana: Not Everything That Glitters Is Gold

Let me begin by saying that I hold Solana and expect to hold it throughout the next bull run. Nevertheless, there are certain significant "risks" that investors ought to be warned of.

First and foremost, investors should be aware that Solana is an inflating figure. Because to staking incentives, Solana's supply grows by 8% per year. This inflation, nevertheless, must be lowered at a pace of 15% per year unless it equals 1% per year.

The main issue that some people have with Solana is how centralized the network, as well as token supply, are:

Insiders as well as initial investors own the majority of the Solana supply. The "public auction" portion of the supply is essentially just 1.3 percent. Although this may be balanced since stake incentives boost supply, the fact is that staking in Solana is not a viable option.

Solana's hardware expenses are substantially greater than those of other cryptocurrencies, making running a node more expensive. Thus far, the majority of validator nodes are controlled by insiders as well as early investors. Operating a node on Solana is currently highly unproductive, prompting the Solana Foundation to launch a subsidy scheme, thereby handing them more influence throughout the network.

To break even when hosting a node on the network, a validator is said to require $1 million in SOL staked without subsidization. To complicate things further, 45 percent of Solana's validators are housed in two different information centers. This creates a decentralization and security issue. Solana has now had four significant network outages in the previous several months.

Finally, Solana has no on-chain governance. Solana employs a delegated Proof-of-Stake mechanism, which, once again, concentrates control in the clutches of several.

Solana is not really a "neutral" network due to its high level of centralization. It is regulated as well as would only suit a few people's interests. This does not have to be a terrible thing. These folks may still be eager in witnessing Solana flourish.

Notwithstanding the significant preponderance of Solana tokens in the possession of original investors, it appears that these tokens are being retained for the time being, indicating trust in the network's long-term viability.

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